Financial Preparation Guide: Ten Simplified Strategies to Cut Costs Prior to the 2024/25 Tax Year's Conclusion
Make the Most of Tax Perks Before April 2025
The taxman is coming for your hard-earned money, and time is running out! The current tax year will end at midnight on April 5, 2025, and it's crucial to take advantage of the remaining tax breaks before they're gone forever.
Alex Johnston, wealth planner at Succession Wealth, warns: "As the tax year-end approaches, we must make sure our financial affairs are in order to take full advantage of tax reliefs, allowances, and exemptions before they vanish."
So, listen up and prepare to save a fortune! Here's your handpicked guide to maximizing your tax allowances and growing your wealth:
1. Cash in on ISAs
ISAs are the ultimate sanctuary for your savings and investments, shielding them from tax. The £20,000 allowance must be used before the tax year ends, so be quick and move any spare cash that dodges taxes into an ISA before April.
Research shows that a whopping 24% of ISA savers are clueless about the end-of-year deadline[1]. Rob Morgan, chief investment analyst at Charles Stanley, urges savers to "act fast and not let their hard-earned money sit idle, ignoring the deadline."
And there's more! Rumors persist that the chancellor might slash the cash ISA limit, possibly to £4,000, later this year[2]. So, stock your ISAs now to secure as much tax-free gains as possible!
2. Transfer cash to your spouse
Marriage isn't just about flowers and chocolates; it's also about taxes! Investments transferred to your partner are tax-free, provided they haven’t used up their tax-free allowance and have room for more ISA allowance[4]. This move can save you a pretty penny while your significant other enjoys lower taxes on your income-producing investments.
3. Lifetime ISAs
Maximize your savings with a Lifetime ISA, available to folks under 40. Your contributions, up to £4,000 a year, receive a 25% bonus from the government, potentially offering up to £1,000 in free cash[5]. This money can be put toward a first home or accessed at age 60 without a penalty.
4. Marriage Allowance
If you're a couple and one partner doesn't pay income taxes, claim the marriage allowance. This tax break saves up to £252 a year in taxes. Boost your savings even more by backdating your claim for up to four tax years[6]. The non-taxpayer applies for the allowance on the HMRC website.
5. Pensions
Grow your retirement fund by contributing up to £60,000 to your pensions[7]. Pension contributions provide tax relief and can push you into a lower tax bracket in terms of capital gains tax and dividend tax. Higher-rate and additional-rate taxpayers can receive an extra 20% or 25% in relief, respectively[8].
6. Inheritance tax reduction
Take advantage of inheritance tax breaks to minimize your overall tax liability. Utilize annual exemptions, allowing gifts of £3,000 each year, which can be carried forward. Additionally, make gifts of up to £250 to as many people as you like, provided you haven't made any larger gifts to that person[7].
7. Help kids (and save taxes)
Contributing to a child's pension or Junior ISA saves taxes. You'll spend only £2,880 on a child's pension, thanks to tax relief that ups your contribution to £3,600[9]. Junior ISAs allow contributions of up to £9,000 a year, offering tax-free investments for children[10].
8. Check your tax code
Verify your tax code to ensure you're not overpaying taxes. A wrong tax code can result in paying thousands of pounds of extra taxes to the taxman. If your tax code is off, claim a refund for the last four tax years.
9. Child Benefits
Child benefit rates increase by 1.7% on April 7, 2025. But remember, parents earning over £60,000 may lose part or all of their payments. Ensure you avoid this high-income child benefit charge by being mindful of your income level and your pension or salary sacrifice contributions.
10. Stay informed
Stay updated on changes in tax laws and allowances by following financial news sources and experts. Stay ahead of the game, and maximize your savings!
[1] Charles Stanley, Research Reveals One Quarter of ISA Savers Unaware of Deadline[2] The Telegraph, Lower cash ISA limit looms, crowding out bonds and savings accounts, September 2020[3] HMRC, Your personal allowance and tax bands[4] Money Saving Expert, Capital Gains Tax, Dividend Tax, Income Tax[5] Money Advice Service, What is a Lifetime ISA?[6] Gov.uk, Claim your marriage allowance[7] Arbuthnot Latham, The Inheritance Tax Maze – A Beginner's Guide to Inheritance Tax, Tax Avoidance Strategies, and the Latest Changes[8] Money Advice Service, Pension contributions explained[9] Money Advice Service, How much tax relief will you get on your pension contributions?[10] HMRC, Junior ISA latest changes and updates
- To avoid losing the potential tax-free gains, swiftly transfer any idling funds that elude taxes into an Individual Savings Account (ISA) before the tax year ends, keeping in mind the £20,000 allowance.
- By transferring investments to one's spouse, particularly when they have unused tax-free allowance and ISA allowance, married couples can capitalize on tax savings.
- Leveraging a Lifetime ISA, available for individuals under 40, can be an effective method to augment savings, as contributions up to £4,000 per year generate a 25% bonus from the government.
- The Marriage Allowance provides a tax break of up to £252 annually for couples where one partner doesn't pay income tax. Claiming this allowance can be backdated for up to four tax years.
- Maximizing retirement savings can be achieved by contributing up to £60,000 annually to pensions, which provides tax relief and may push one into a lower tax bracket for capital gains tax and dividend tax.
- To minimize overall tax liability, consider utilizing inheritance tax breaks by utilizing annual exemptions, gifting up to £3,000 per year, and up to £250 to multiple individuals (provided no larger gifts were given).
- Contributing to a child's pension or Junior ISA can save taxes as well as offer tax-free investments for children, with contributions receiving significant tax relief.
- Double-check your tax code to ensure you're not overpaying taxes, as an incorrect tax code may result in thousands of pounds in excess payments to the taxman.
- Keep informed of changes in tax laws and allowances by following financial news sources and experts, consistently staying ahead of the game and maximizing your savings.
